Selling a primary residence and relocating to a cheaper market may be one of the most powerful retirement moves people can make given how the real estate markets have boomed over the past decade, a new Vanguard study says.

In fact, of the nearly 80% of age 60 and over retirees who are homeowners, nearly 50% of their assets are tied up in their house, according to the report.

“Although home equity represents the most prevalent and often most significant source of wealth for American households, there has not been a commensurate focus on the use of this wealth in retirement,” Vanguard researchers Kevin Khang, Kate McKinnon and Joanna Rocha said in the new report.

“Our results challenge the narrative that housing wealth is off-limits to most retirees and highlights a previously underappreciated channel: relocation to a cheaper housing market,” they added.

While not everyone wants to relocate, retirees who do move to a less expensive market—a strategy Vanguard refers to as “retire-and-relocate”—are able to free up substantial assets, Vanguard said.

Over a 10-year period, some 25% of all retirees have the potential to shore up their retirement funding through relocation, said the researchers, who found that this type of move is most prevalent among people in the 60 to 69 age group.

The median retired homeowner age 60 or older who uses a “retire and relocate” technique could have accessed about $99,000 in home equity in 2019, a figure that rises to $347,000 for the top 10th percentile of retiree home sellers and has likely increased significantly based on the housing boom, the report said.

“Since the average homeowner in that age group holds $223,000 of retirement savings in financial accounts, the additional funding could be mission-critical to a secure retirement,” researchers said.

The tendency to move to a less expensive housing market varies along two cycles. First, sellers create a hump-shaped pattern over their life cycle, with relocations rising in the 30 to 50 age bracket, peaking in the 60s, and declining rapidly into the 80s.
The housing cycle also has a significant impact on the strategy. “In a bull market, up to 50% of retire-and-relocators move from a housing market with significantly above national-average growth--as is the case of cities like Washington, D.C., where homeowners saw 174% housing equity growth,” said Vanguard, which refers to this group as “lottery winners.”

During housing market downturns, however, lottery winners’ presence drops to below 20%, and there is an uptick in retiree “bargain hunters” who access equity by moving to a  housing market with anemic historic growth, the firm said.

“Use of the strategy has not been limited to those who owned a primary residence in a high-growth market. Although lottery winners’ home equity access has depended on timing, bargain hunters seem to prioritize unlocking home equity regardless of the market environment,” the researchers said.

“Lottery winners’ potential equity extraction is more sensitive to housing market conditions, with the average declining from over 60% for most of the 2000s to almost 20% in 2015.  Bargain hunters, on the other hand, show a stable (in fact, moderately increasing) average of about 50% from 2010 onward,” they added.